How Car Dealers Nickel and Dime Your Trade-in So You Pay More

Having All The Data Isn't Always A Good Thing

The situation comes up again and again. Customers come into a dealership to buy a new car with high hopes of getting a great price for their meticulously maintained trade-in. The interior is immaculate, the exterior basically looks brand-new, and they have a file folder full of maintenance records under their arm.

But after spending a few minutes with a salesperson armed with a vehicle history report, they are crestfallen. Whether minor or serious, any accidents listed in the report could easily end up costing them a few hundred -- or even a few thousand -- dollars on the deal. They are pitted against the very tool that they may have employed as used-car buyers in the past.

Dealerships say they rely on vehicle histories from firms like CARFAX and AutoCheck to protect their used-car inventories as well as their future customers. But when accidents show up in the histories, critics say, those records become the perfect tool to dampen expectations about a trade-in's value -- justifiably or not. The seller ends up feeling as though a black mark has shown up on a credit report.

"It's very common in the industry to use every possible instrument to get the price down," said Tim Blake, a Miami attorney specializing in consumer and car dealership issues.

It's also part of the drill to point out every dent or scratch on the trade-in vehicle, he said. And if a vehicle history provides documentation, so much the better.

While vehicle history reports are marketed heavily to consumers, the concept originated as an aid to dealerships. CARFAX, the pioneer, was founded in the early 1980s, and only began providing vehicle information to consumers in the 1990s. Dealerships are a major source of business for AutoCheck, another provider of vehicle histories, as well as CARFAX.

Jeffrey Bennett, a professor of automotive marketing at Northwood University in Midland, Mich., says that's just natural: dealers need to protect their customers from lemons and clunkers. But Blake argues that dealerships mostly value vehicle history reports "as a weapon. Sales people like to wave them around."

In the hand-to-hand combat on the dealership floor, it's data versus data. Customers today are armed with incentive and pricing information when they walk into a showroom. The history reports, retrieved from databases with a vehicle's vehicle identification number, offer dealerships an opportunity to fight back. Given their razor-thin margins today, they may see that as a necessity.

Dealers have to protect themselves, too, Bennett said. If a dealer accepts a defective car in trade, it's going to be the dealer who is liable, not the person who traded in the vehicle.

When Bennett was a Toyota dealer, he caught several brazen customers trying to buy a new car without admitting that their trade-ins had been in extremely serious accidents. In these cases, it turned out that the cars had salvage titles. A salvage title indicates that the car has suffered damage equivalent to 70 percent of its value. They would have been nearly a total loss to his dealership.

"We couldn't sell a car with a salvage title," he said.

Minor Accidents Can Mean Big Problems

An accident or two on a vehicle history report might not be an indication that a car has major problems. But perception may be more important than reality. Amanda Levin of Park Ridge, Ill., found this out when she began negotiating a trade-in price for her meticulously maintained 2005 Toyota Matrix with about 87,000 miles on it. Its book value was about $6,000.

She told her salesman about her two minor fender benders. She also mentioned the time the front bumper came loose in deep snow. Although minor, the three incidents were reported to her insurance company because she had a low deductible and could get the costs reimbursed. But that was more than enough to get them into the vehicle's history.

If the Matrix were taken in trade, the salesman told her the dealership might be forced to sell the car wholesale or even scrap it, Levin recalls. The fact that her Matrix might be sold for parts bothered her more than anything.

"It was my first new car," she said. "After taking such good care of it, I wanted it to go to a good home," not wind up in a salvage yard, she said. After some more conversation, she accepted $5,700 as the value.

Bennett says it wasn't likely that the dealer would have scrapped Levin's Matrix under those circumstances. Blake sees even the suggestion as a negotiating ploy.

In any case, dealerships don't really need vehicle histories to evaluate cars, Blake says. "Their appraisers can walk around the car, and not even open a door or the hood, and tell you everything about a car," he said.

"They can tell when a door doesn't have a nice solid line," he said. "They can tell when a door has been repainted. The can tell when the rivets on VIN number on dashboard has been pulled and there is a fake VIN number on the car. They can tell it all."

But Bennett says they do need the information. And their appetite for it is nothing new -- it's simply gone high-tech. Before vehicle histories were available over the Internet, dealers would readily factor information about accidents into their decisions if they could uncover any.

Accidents simply create uncertainty about a vehicle's mechanical condition, he said. "It's just the way things are," he said. "The perception is that a car that has been damaged is worth less than a car that hasn't -- regardless of the level of the damage."

Bennett offers this example: First of all, assume you have a choice of a blue 2007 Dodge Caravan or a red 2007 Dodge Caravan with the same mileage. Then assume the blue one has been in a "superficial" accident -- one in which the airbags did not deploy and the structure was not damaged.

"On the other van, let's say that there has been no damage whatsoever," Bennett said. "No matter how we look at this, the blue van is not going to be worth as much as the red one because it has been repaired."

Before vehicle histories were marketed to consumers, Bennett recalls, a friend of his had to have his car repainted after a contaminant ruined its paint surface outside a factory. "In reality, the car had no real damage," he said. "But the fact that a car has been repainted at all will lower the value of the vehicle," he said.

At a dealer-only auto auction in Flint, Mich., each week, Bennett regularly sees buyers from dealerships painstakingly measuring the thickness of the exterior sheet metal. They want to know if the vehicle has been repainted -- an indication that it may have suffered major damage at some point.

If the exterior was in fact repainted, "the guy might still decide to buy it and assume the damage was minor, but it won't bring in as much as it would have otherwise."

The lesson is clear: In an automotive industry awash in data, it may take more than just oil changes every 3,000 miles to maintain your trade-in's value. It may take a perfect accident record as well.

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